IPO Process

An IPO completely comprises of two sections. The first is the pre-marketing period of the
offering, while the second is simply the initial public offering. At the point when a company
is keen on an IPO, it will publicize to underwriters by requesting private bids or it can
likewise offer a public statement to produce intrigue. The underwriters lead the IPO
procedure and are picked by the company. A company may pick one or a few underwriters to
oversee various pieces of the IPO procedure cooperatively. The underwriters are associated
with each part of the IPO due diligence, record keeping, documenting, marketing, and
issuance.

Steps to an IPO
Stage 1: Preparation of Registration Statement
To start an IPO procedure, the company involved must present a registration statement to the
SEBI, which incorporates a detailed report of its fiscal wellbeing and business plans. SEBI
investigates this report and does its very own background check of the company. It should
likewise observe that registration statement satisfies all the mandatory requirements and
fulfils all rules and regulations.

Step 2: Getting the Prospectus Ready

While awaiting the approval, the company, with help from the underwriters, must make a
preliminary ‘Red Herring’ prospectus. It incorporates point by point financial records, future
plans and the particulars of an expected share value range. This prospectus is intended for
prospective investors who might be keen on purchasing the stock. It additionally has a legal
warning about the IPO pending SEBI approval.

Step 3: Road-show
When the prospectus is prepared, underwriters and company authorities go on countrywide
‘roadshows’, visiting the significant trade hubs and promote the company’s IPO among select
few private purchasers (Usually Corporates or High Net Individuals).

They are given detailed data in regards to the company’s future arrangements and
development potential. They get a vibe of investor reaction through these visits and attempt
to charm huge investors.

Step 4: SEBI Approval

Once SEBI is satisfied with the registration statement, it announces the statement to be
effective, giving approval for the IPO to occur and a date to be fixed for the same. Sometimes
it demands alterations to be made before giving permission. The prospectus cannot be given
to the public without the corrections proposed by SEBI. The company needs to choose a
stock exchange where it means to sell its shares and get listed.

Step 5: Deciding On Price Band and Share Number

After the SEBI approval, the company, with help from the underwriters settles the price band
of the shares and furthermore chooses the number of shares to be sold.

Step 6: Availability to the Public

On the dates referenced in the prospectus, the shares become accessible to the public.
Investors can round out the IPO frame and determine the cost at which they wish to make the
purchase and present the application.

Step 7: Issue-Price and Share Allotment

When the subscription time frame lapses, individuals from the underwriting banks, share
issuing company, etc. will meet and decide the cost at which shares are to be distributed to
the prospective buyers. The price would be directly controlled by the demand and the bid
price cited by investors. When the price is settled, shares are allotted to investors dependent
on the bid amounts and the shares accessible.

Step 8: Listing and Unblocking of assets

The last step is the listing in the Stock Exchanges. Investors who have applied through ASBA
and to whom shares were allotted would get the shares credited to their DEMAT accounts
and their funds getting debited from their account. On the other hand, for those investors to
whom the shares were not so apportioned, funds would get unblocked in their bank accounts.

Benefits of Investing in IPO

 Get in on the action early- Investing in an IPO will turn out to be beneficial if a
company will grow rapidly in the coming future and that’s how people would be able
to grow their wealth in the long run. If we are investing in a company that is making
good profits in the market, then we will also grow along with the growth of that
company.

 Long term goals- Investing in an IPO is like an equity investment. IPOs have the
potential to bring us a lot of profits in the long run and by that, we would be able to
 fulfil our long-term goals like buying a house. Indian IPO market is also growing and
it has generated 11 billion through IPOs in 2017.

 Transparency- We will get to have clear transparency of the price just like big
investors. We will be able to see the price of the securities in the IPO order. So, the
entire procedure is very transparent. After the company is turned into an IPO then the
share prices will highly depend upon the changing market conditions.

 Buy cheap earn big- When companies are planning to go for an IPO, then their
shares are offered at discounted prices. So, when a promising company will float for
IPO, it is going to offer its shares at the cheapest price possible but after it makes a
profit in the long run, investing in that company will be next to impossible for any.

Risks involved in investing in an IPO

1. The biggest risk of investing in an IPO, that there is no guarantee of receiving the
shares. If the shares are subscription based then any number of individuals can apply
for them. Then, the company will allot the shares on a proportional basis and if we are
a small-time investor and the individuals are many then the Pre-IPO share mechanism
of India will hardly get us any shares.
2. When you buy Pre-IPO shares then you run the risk of receiving less than what we
invested. The price of Pre-IPO shares is only decided only after it is listed and there
are many cases where the listed price is turned out to be less than the purchase price.
3. External influence can affect the price especially when companies are running their
business as per the government legislation which can change as per the present
political situation of the country.